Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The Mexican government dealt resource companies a major blow last week in the form of a 7.5% tax.
Appalled, some mining companies have threatened to leave the country.
The Canadian Chamber of Commerce’s mining task-force in Mexico said “Mexico is completely pricing itself out of the market.”
For ArcelorMittal Mexico, the mining tax is just the tip of the ice berg.
Speaking at an industry conference on Thursday, CEO of ArcelorMittal’s Mexico division Victor Cairo said there is “nothing positive” about the current political environment, at least not in the short term.
Various factors have affected the company’s steel production: Unfair foreign competition, an oversupplied market, and increasing energy costs which, according to Cairo, are already 50% higher than in the US.
“When you add all of that its very negative,” Cairo said in an interview with MINING.com. “In the short term it doesn’t look promising. 2014 is going to be a very tough year in terms of costs and competitiveness.”
Higher energy costs coupled with the new tax will cost the company $65 million, the CEO says. But in the long term, as energy reforms boost domestic oil and gas production, the firm expects energy costs to decrease.
Reforms in the energy sector are seen as crucial to making Mexican firms more competitive. Despite being the world’s 10th biggest producer of crude oil, production has been falling since 2004, driving up energy costs.
Meanwhile, imports of foreign steel have made business difficult in Mexico, where Cairo’s division sells about 60% of its steel slabs.
Cairo says his company needs to continue to work with the government to make sure its protected against what it deems unfair competition from Turkey, Brazil and Russia.
As for Mexico’s president and his reforms, Cairo isn’t as harsh as some others in the industry.
“I think he’s trying to do the right thing but he’s taking too long,” Cairo said. “The president has a big challenge and we support him. But right now the impact on the industry is not positive in the short term.”
ArcelorMittal is the world’s biggest steelmaker. Its Mexico operations include various iron ore mines, rolling mills and steelmaking plants.
2 Comments
Roberto
Which industry conference is the author referring to? It is not clear
MINING.com Editors
Hi Roberto,
The conference was titled the ‘Second Annual Meeting to Discuss Cooperation and Co-responsibility for Labour and Corporate Productivity in Mexico,’ organized by the National Union of Mine, Steel and Allied Workers of the Mexican Republic.